As financial markets have grown, product offerings have increased in capabilities and complexity. Traditional offerings of stocks and bonds have splintered into many different forms of equity and debt instruments, followed by a wave of derivative products linked to these securities. Various levels of risk, rate of return and tax enhanced characteristics are bestowed on these securities to better address client investment needs.
Financial firms have shown incredible creativity in devising a wide spectrum of investment vehicles selectively tailored to the needs of individual and institutional investors. These broad offerings are motivated by the vast universe of different client characteristics that need servicing. These differences include distinct tax rates, portfolio size or available capital, tolerances for risk, domicile and/or residency issues, time horizons, and the like. By way of example, in the case of a client's domicile/residency, the risk tolerance for Panama sovereign debt is much higher for a Panama resident than, perhaps a German resident.
In order to be responsive to such client needs, the financial industry has developed narrower, more focused products with highly tailored profiles of characteristics. These more focused financial instruments, target specific subsets, in, by definition, a smaller client population. More generally, as the products are more tailored to an individual profile, they address fewer clients.
Exemplary, more focused, product offerings that have grown in popularity include: CBOs, CMOs and CDOs (i.e., respectively, collateralized bond, mortgage and debt obligations). Furthermore, these securities are created and issued based on a basket of debt instruments aggregated into a trust or similar assembly which provides the underlying collateral to support the repayment obligation and return per the contract. Many variants exist.
In particular, for equity investors, new products may correspondence to select equity issues or indices. There are many variations of index trusts that have many of the features exhibited by mutual funds but permit intraday trading similar to conventional securities. Having a more retail focus, these included SPDRs®, iShares®, and the like.
Further variations on these more focused instruments included complex trust structures. While no effort is made here to be exhaustive, prior offerings have included RACERS®, an acronym for Restructured Assets Certificates with Enhanced Returns, distributed by the assignee of the present invention. See specifically, a representative description:                NEW YORK—(BUSINESS WIRE)—Apr. 2, 2003—Standard & Poor's—Standard & Poor's Ratings Services today assigned its ‘AA’ rating to Restructured Asset Certificates With Enhanced Returns (RACERS) Series 2003-8-C Trust's $10 million credit-linked certificates series 2003-8-C.        The rating reflects the credit quality of the underlying asset, Chase Credit Card Owner Trust 2002-1's class A notes with an expected maturity of Feb. 15, 2007, and a legal final maturity of Jun. 15, 2009 (‘AAA’); and the reference obligation, which has been defined to equal the FSR (Financial Strength Rating) of the reference entity, Radian Asset Assurance Inc. (‘AA’). The rating also addresses the likelihood of the trust making payments on the certificates as required under the trust agreement.        The trust entered into a credit default swap with Lehman Brothers Special Financing Inc. (Lehman Brothers) as the swap counterparty. At closing, Lehman Brothers made one initial payment to the trust and has no further payment obligations.        Copyright 2003, Standard & Poor's Ratings Services        
See also: STEERS™, an acronym for “structured enhanced return trusts” reflecting trust certificates issued by a special purpose trust in select par amounts as distributed by Merrill Lynch & Co.
Lastly, one must include the alternative structures that have significant market appeal, such as convertible bonds—which are debt instruments that permit selective conversion to equity. While very attractive to a broad range of investors, convertible bonds are rigid and narrowly focused on a limited set of securities.
In summary, the various securities available today offer many advantages over prior investment vehicles. In many instances, however, these current investment vehicles have a focus that is often too narrow, or restrictive, limiting demand to a narrow market sector. In addition, current complex securities are difficult to manage effectively and become costly to create, issue and implement.
It was with this understanding of the current investment market that led to the development of the present invention.